facebook ipo registration statement

7/29/2019 Facebook Ipo Registration Statement

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FACEBOOKINC

FORMS-1/A(Securities Registration Statement)

Filed 05/16/12

Address 1601 WILLOW ROAD

MENLO PARK, CA 94025

Telephone 650-618-7714

CIK 0001326801

Symbol FB

SIC Code 7370 - Computer Programming, Data Processing, And

http://www.edgar-online.com

Copyright 2012, EDGAR Online, Inc. All Rights Reserved.

Distribution and use of this document restricted under EDGAR Online, Inc. Terms of Use.
http://www.edgar-online.com/


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As filed with the Securities and Exchange Commission on May 16, 2012Registration No. 333-1

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 8 toForm S-1REGISTRATION STATEMENT

UnderThe Securities Act of 1933

Facebook, Inc.(Exact name of Registrant as specified in its charter)

Delaware 7370 20-1665019(State or other jurisdiction of

incorporation or organization)(Primary Standard IndustrialClassification Code Number)

(IRS EmployerIdentification No.)

Facebook, Inc.1601 Willow Road

Menlo Park, California 94025(650) 308-7300

(Address, including zip code, and telephone number, including area code, of Registrants principal executive offices)

David A. EbersmanChief Financial Officer



(Name, address, including zip code, and telephone number, including area code, of agent for service)

Please send copies of all communications to:

Gordon K. Davidson, Esq.

Jeffrey R. Vetter, Esq.James D. Evans, Esq.Fenwick & West LLP801 California Street

Mountain View, California 94041(650) 988-8500

Theodore W. Ullyot, Esq.

David W. Kling, Esq.Michael L. Johnson, Esq.



William H. Hinman, Jr., Esq.

Daniel N. Webb, Esq.Simpson Thacher & Bartlett LLP

2550 Hanover StreetPalo Alto, California 94304

(650) 251-5000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registatement number of the earlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number arlier effective registration statement for the same offering.

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number arlier effective registration statement for the same offering.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ccelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

arge accelerated filer Accelerated filer on-accelerated filer (Do not check if a smaller reporting company) Smaller reporting compan

CALCULATION OF REGISTRATION FEE

Title of Each Class ofSecurities to be Registered

Amountto be

Registered(1)

ProposedMaximum

Offering PricePer Share

ProposedMaximumAggregate

Offering Price(2)Amount of

Registration Flass A Common Stock, $0.000006 par value 388,027,654 $38.00 $14,745,050,852 $1,556,379(3)

lass A Common Stock, $0.000006 par value 96,391,003 $38.00 $ 3,662,858,114 $ 419,764(4)

otal 484,418,657 $38.00 $18,407,908,966 $1,976,143(3)

) Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes additional shares that the underwriters have the option to purchase to cover over-allotmany.

2) Estimated solely for the purpose of calculating the registration fee.3) The Registrant previously paid $1,556,379 of the total registration fee in connection with prior filings of this Registration Statement.


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he information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registrtatement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and neither we nor the stockholders are soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

PROSPECTUS (Subject to Completion)ssued May 16, 2012

421,233,615 Shares

CLASS A COMMON STOCK

Facebook, Inc. is offering 180,000,000 shares of its Class A common stock and the selling stockholders are offering 241,233,615 sharClass A common stock. We will not receive any proceeds from the sale of shares by the selling stockholders. This is our initial public off

nd no public market currently exists for our shares of Class A common stock. We anticipate that the initial public offering price wi

etween $34.00 and $38.00 per share.

We have two classes of common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common snd Class B common stock are identical, except voting and conversion rights. Each share of Class A common stock is entitled to one ach share of Class B common stock is entitled to ten votes and is convertible at any time into one share of Class A common stock.olders of our outstanding shares of Class B common stock will hold approximately 95.9% of the voting power of our outstanding catock following this offering, and our founder, Chairman, and CEO, Mark Zuckerberg, will hold or have the ability to control approxima5.8% of the voting power of our outstanding capital stock following this offering.

Our Class A common stock has been approved for listing on the NASDAQ Global Select Market under the symbol FB.

We are a controlled company under the corporate governance rules for NASDAQ-listed companies, and our board of directorsdetermined not to have an independent nominating function and instead to have the full board of directors be directly responsible

ominating members of our board.

nvesting in our Class A common stock involves risks. See Risk Factors beginning on page 12.

PRICE$ A SHARE

We and the selling stockholders have granted the underwriters the right to purchase up to an additional 63,185,042 shares of Class A comtock to cover over-allotments.

The Securities and Exchange Commission and state regulators have not approved or disapproved of these securities, or determined ifrospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of Class A common stock to purchasers on , 2012.

Price toublic

UnderwritingDiscounts andCommissions

Proceeds toFacebook

Proceeds tSelling

Stockholde

Per share $ $ $ $Total $ $ $ $

MORGAN STANLEY J.P. MORGAN GOLDMAN, SACHS & C

BofA MERRILL LYNCH BARCLAYS ALLEN & COMPANY LLC


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, 2012

CITIGROUP CREDIT SUISSE DEUTSCHE BANK SECURITIES

RBC CAPITAL MARKETS WELLS FARGO SECURITIES


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Neither we, nor the selling stockholders, nor the underwriters, have authorized anyone to provide any information or to makeepresentations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility

nd can provide no assurance as to the reliability of, any other information that others may give you. We and the selling stockholders are offo sell, and seeking offers to buy, shares of our Class A common stock only in jurisdictions where offers and sales are permitted. The informn this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of sharur Class A common stock. Our business, financial condition, results of operations, and prospects may have changed since that date.

The information in this preliminary prospectus is not complete and is subject to change. No person should rely on the informontained in this document for any purpose other than participating in our proposed initial public offering, and only the preliminary prospssued May 16, 2012, is authorized by us to be used in connection with our proposed initial public offering. The preliminary prospectus will e distributed by us and the underwriters named herein and no other person has been authorized by us to use this document to offer or sell anur securities.

Until , 2012 (25 days after the commencement of our initial public offering), all dealers that buy, sell, or trade sharur Class A common stock, whether or not participating in our initial public offering, may be required to deliver a prospectus. elivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respeheir unsold allotments or subscriptions.

For investors outside the United States: Neither we, nor the selling stockholders, nor the underwriters have done anything that wermit our initial public offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is requther than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves abnd observe any restrictions relating to, the offering of the shares of our Class A common stock and the distribution of this prospectus outsidhe United States.

i

Page

rospectus Summary 1Risk Factors 12

pecial Note Regarding Forward-Looking Statements 35ndustry Data and User Metrics 36

Use of Proceeds 37Dividend Policy 37Capitalization 38Dilution 41

elected Consolidated Financial Data 43Managements Discussion and Analysis of Financial

Condition and Results of Operations 46Letter from Mark Zuckerberg 81Business 85

Pa

Management 10Executive Compensation 1Related Party Transactions 1Principal and Selling Stockholders 14

Description of Capital Stock 14Shares Eligible for Future Sale 1Material U.S. Federal Tax Considerations for Non-U.S.

Holders of Class A Common Stock 1Underwriting 1Legal Matters 17Experts 17Where You Can Find Additional Information 17Index to Consolidated Financial Statements F


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PROSPECTUS SUMMARY

This summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and donot contain all of the information you should consider in making your investment decision. You should read the entire prospectus carefulbefore making an investment in our Class A common stock. You should carefully consider, among other things, our consolidated financistatements and the related notes and the sections entitled Risk Factors and Managements Discussion and Analysis of Financi

Condition and Results of Operations included elsewhere in this prospectus.FACEBOOK, INC.

Our mission is to make the world more open and connected.

People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and share and express what matters to them to the people they care about.

Developers can use the Facebook Platform to build applications (apps) and websites that integrate with Facebook to reach our globnetwork of users and to build products that are more personalized, social, and engaging.

Advertisers can engage with more than 900 million monthly active users (MAUs) on Facebook or subsets of our users based oinformation they have chosen to share with us such as their age, location, gender, or interests. We offer advertisers a unique combination reach, relevance, social context, and engagement to enhance the value of their ads.

We believe that we are at the forefront of enabling faster, easier, and richer communication between people and that Facebook hbecome an integral part of many of our users daily lives. We have experienced rapid growth in the number of users and their engagement

We had 901 million MAUs as of March 31, 2012, an increase of 33% as compared to 680 million MAUs as of March 31, 2011

We had 526 million daily active users (DAUs) on average in March 2012, an increase of 41% as compared to 372 million DAin March 2011.

We had 488 million MAUs who used Facebook mobile products in March 2012.

There were more than 125 billion friend connections on Facebook as of March 31, 2012.

Our users generated an average of 3.2 billion Likes and Comments per day during the first quarter of 2012.


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For a description of how we calculate our MAUs and DAUs and factors that can affect these metrics, see Industry Data and UsMetrics and Managements Discussion and Analysis of Financial Condition and Results of OperationsTrends in Our User Metrics.

How We Create Value for Users

Our top priority is to build useful and engaging products that enable you to:

Connect with Your Friends. With more than 900 million MAUs worldwide, our users are increasingly able to find and sta

connected with their friends, family, and colleagues on Facebook.

iscover and Learn. We believe that users come to Facebook to discover and learn more about what is going on in the woraround them, particularly in the lives of their friends and family and with public figures and organizations that interest them.

xpress Yourself. We enable our users to share and publish their opinions, ideas, photos, and activities to audiences rangifrom their closest friends to our 900 million users, giving every user a voice within the Facebook community.

Control What You Share. Through Facebooks privacy and sharing settings, our users can control what they share and wiwhom they share it.

xperience Facebook Across the Web. Through apps and websites built by developers using the Facebook Platform, our usecan interact with their Facebook friends while playing games, listening to music, watching movies, reading news, and engagiin other activities.

Foundations of the Social Web

tay Connected with Your Friends on Mobile Devices. Through the combination of our mobile sites, smartphone apps, afeature phone products, users can bring Facebook with them on mobile devices wherever they go.

We believe that the web, including the mobile web, is evolving to become more social and personalized. This evolution is creatimore rewarding experiences that are centered on people, their connections, and their interests. We believe that the following elements forthe foundation of the social web:

uthentic Identity. We believe that using your real name, connecting to your real friends, and sharing your genuine interesonline create more engaging and meaningful experiences. Representing yourself with your authentic identity online encouragyou to behave with the same norms that foster trust and respect in your daily life offline. Authentic identity is core to tFacebook experience, and we believe that it is central to the future of the web. Our terms of service require you to use your rename and we encourage you to be your true self online, enabling us and Platform developers to provide you with mopersonalized experiences.

ocial Graph. The Social Graph represents the connections between people and their friends and interests. Every person entity is represented by a point within the graph, and the affiliations between people and their friends and interests form billio

of connections between the points. Our mapping of the Social Graph enables Facebook and Platform developers to build moengaging user experiences that are based on these connections.

ocial Distribution. Over time, people are consuming and creating more kinds of information at a faster pace across a broadrange of devices. The growing volume of information makes it challenging to find meaningful and trusted content and effectively make your voice heard. Facebook organizes and prioritizes content and serves as a powerful social distribution todelivering to users what we believe they will find most compelling based on their friends and interests.


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How We Create Value for Developers Through the Facebook Platform

The Facebook Platform is a set of development tools and application programming interfaces (APIs) that enables developers to easiintegrate with Facebook to create social apps and websites and to reach our 900 million users. Platform developers build experiences thallow our users to connect and share with friends while engaging in a wide range of activities. Platform developers range from a student ohis or her computer at home to teams of programmers at leading websites. We are focused on the growth and success of Platfordevelopers by enabling:

Personalized and Social Experiences. We enable Platform developers to create better products that are personalized and sociand that offer new ways for our users to engage with friends and share experiences across the web and on mobile devices. Fexample, a Facebook user can visit the Pandora website and immediately begin listening to a personalized radio station that customized based on the bands the user Likes on Facebook.

ocial Distribution. We enable Platform developers to reach our global user base and use our social distribution channels increase traffic to their apps and websites.

How We Create Value for Advertisers and Marketers

Payments. We provide an online payments infrastructure that enables Platform developers to receive payments from our usersan easy-to-use, secure, and trusted environment.

We offer advertisers and marketers a unique combination of reach, relevance, social context, and engagement:

each. With over 900 million MAUs, Facebook offers the ability to reach a vast consumer audience with our advertisin

solutions. elevance. Advertisers can specify that we show their ads to a subset of our users based on demographic factors and speci

interests that they have chosen to share with us on Facebook or by using the Like button around the web. We allow advertisers select relevant and appropriate audiences for their ads, ranging from millions of users in the case of global brands to hundreds users in the case of smaller, local businesses.

ocial Context. We believe that the recommendations of friends have a powerful influence on consumer interest and purchadecisions. We offer advertisers the ability to include social context with their marketing messages. Social context information that highlights a friends connections with a particular brand or business, for example, that a friend Liked a produor checked in at a restaurant. We believe that users find marketing messages more engaging when they include social context.

Our Market Opportunity

Our Advertising Market Opportunity

ngagement. We believe that the shift to a more social web creates new opportunities for businesses to engage with interestecustomers. Any brand or business can create a Facebook Page to stimulate an ongoing dialog with our users.

Advertisers objectives range from building long-term brand awareness to stimulating an immediate purchase. We offer advertisisolutions that are designed to be more engaging and relevant for users in order to help advertisers better achieve their goals. Facebookcombination of reach, relevance, social context, and engagement gives advertisers enhanced opportunities to generate brand awareness anaffiliation, while also creating new ways to generate near-term demand for their products from consumers likely to have purchase


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intent. According to an IDC report dated August 2011, total worldwide advertising spending in 2010 was $588 billion. Our addressabmarket opportunity includes portions of many existing advertising markets, including the traditional offline branded advertising, onlidisplay advertising, online performance-based advertising, and mobile advertising markets.

Advertising on the social web is a significant market opportunity that is still emerging and evolving. We believe that most advertiseare still learning and experimenting with the best ways to leverage Facebook to create more social and valuable ads.

Our Market Opportunity for Payments

When users purchase virtual and digital goods from our Platform developers using our Payments infrastructure, we receive fees threpresent a portion of the transaction value. Currently, substantially all of the Payments transactions between our users and Platfordevelopers are for virtual goods used in social games. According to an NPD In-Stat report dated April 2012, the worldwide revenugenerated from the sale of virtual goods on social networking sites, online worlds, and casual games was $9 billion in 2011, and forecasted to increase to $14 billion by 2016. We currently require Payments integration in games on Facebook, and we may seek to extethe use of Payments to other types of apps in the future.

Our Strategy

We are in the early days of pursuing our mission to make the world more open and connected. We have a significant opportunity further enhance the value we deliver to users, developers, and advertisers. Key elements of our strategy are:

xpand Our Global User Community. We continue to focus on growing our user base across all geographies, includirelatively less-penetrated, large markets such as Brazil, Germany, India, Japan, Russia, and South Korea. We intend to grow o

user base by continuing our marketing and user acquisition efforts and enhancing our products, including mobile apps, in ordto make Facebook more accessible and useful.

uild Great Social Products to Increase Engagement. We prioritize product development investments that we believe wcreate engaging interactions between our users, developers, and advertisers on Facebook, across the web, and on mobile deviceWe continue to invest significantly in improving our core products such as News Feed, Photos, and Groups, developing neproducts such as Timeline and Ticker, and enabling new Platform apps and website integrations.

Provide Users with the Most Compelling Experience. Facebook users are sharing and receiving more information acrossbroader range of devices. To provide the most compelling user experience, we continue to develop products and technologifocused on optimizing our social distribution channels to deliver the most useful content to each user by analyzing anorganizing vast amounts of information in real time.

uild Engaging Mobile Experiences. We are devoting substantial resources to developing engaging mobile products aexperiences for a wide range of platforms, including smartphones and feature phones. In addition, we are working across thmobile industry with operators, hardware manufacturers, operating system providers, and developers to improve the Faceboo

experience on mobile devices and make Facebook available to more people around the world. We believe that mobile usage Facebook is critical to maintaining user growth and engagement over the long term.

nable Developers to Build Great Social Products Using the Facebook Platform. The success of our Platform developers athe vibrancy of our Platform ecosystem are key to increasing user engagement.


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We continue to invest in tools and APIs that enhance the ability of Platform developers to deliver products that are more socand personalized and better engage users on Facebook, across the web, and on mobile devices. Additionally, we plan to invest enhancing our Payments offerings and in making the Payments experience on Facebook as convenient as possible for users aPlatform developers.

Summary Risk Factors

mprove Ad Products for Advertisers and Users. We plan to continue to improve our ad products in order to create more valfor advertisers and enhance their ability to make their advertising more social and relevant for users. Our advertising strate

centers on the belief that ad products that are social, relevant, and well-integrated with other content on Facebook can enhanthe user experience while providing an attractive return for advertisers. We intend to invest in additional products for oadvertisers and marketers while continuing to balance our monetization objectives with our commitment to optimizing the usexperience.

Our business is subject to numerous risks described in the section entitled Risk Factors and elsewhere in this prospectus. Yshould carefully consider these risks before making an investment. Some of these risks include:

If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, orevenue, financial results, and business may be significantly harmed;

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending advertisers with Facebook, could seriously harm our business;

Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use personal computers may negatively affect our revenue and financial results;

Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systemnetworks, and standards that we do not control;

We may not be successful in our efforts to grow and further monetize the Facebook Platform;

Our business is highly competitive, and competition presents an ongoing threat to the success of our business;

Improper access to or disclosure of our users information, or violation of our terms of service or policies, could harm oreputation and adversely affect our business;

Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, aother matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could harm obusiness;

Our CEO has control over key decision making as a result of his control of a majority of our voting stock;

The loss of Mark Zuckerberg, Sheryl K. Sandberg, or other key personnel could harm our business;

We anticipate that we will expend substantial funds in connection with tax withholding and remittance obligations related to tinitial settlement of our restricted stock units (RSUs);

The market price of our Class A common stock may be volatile or may decline, and you may not be able to resell your sharesor above the initial public offering price; and

Substantial blocks of our total outstanding shares may be sold into the market as lock-up periods end, as further describedShares Eligible for Future Sale. If there are substantial sales of shares of our common stock, the price of our Class A commstock could decline.


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THE OFFERING

Class A common stock offered

By us 180,000,000 shares

By the selling stockholders 241,233,615 shares

Over-allotment option of Class A common stock offered

Total 421,233,615 sharesClass A common stock to be outstanding after our initial public offering 635,881,796 shares

Class B common stock to be outstanding after our initial public offering 1,502,203,241 shares

Total Class A and Class B common stock to be outstanding afterour initial public offering

2,138,085,037 shares

By us 3,094,842 shares

By the selling stockholders 60,090,200 shares

Total 63,185,042 shares

Use of proceeds We estimate that our net proceeds from the sale of the Class

common stock that we are offering will be approximate$6.4 billion, assuming an initial public offering price of $36.00 pshare, which is the midpoint of the price range on the cover paof this prospectus, and after deducting estimated underwritidiscounts and commissions and estimated offering expenspayable by us.

The principal purposes of our initial public offering are to createpublic market for our Class A common stock and thereby enabfuture access to the public equity markets by us and oemployees, obtain additional capital, and facilitate an orderdistribution of shares for the selling stockholders. We intend to uthe net proceeds to us from our initial public offering for workincapital and other general corporate purposes; however we do n

have any specific uses of the net proceeds planned. We may usome of the net proceeds to us to satisfy a portion of tanticipated tax withholding and remittance obligations relatto the initial settlement of our outstanding RSUs. Additionally, wmay use a portion of the proceeds to us for acquisitions complementary businesses, technologies, or other assets.

We will not receive any proceeds from the sale of shares Class A common stock by the selling stockholders. In connectiwith our initial public


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offering, Mark Zuckerberg, our founder, Chairman, and CEO, wexercise an outstanding stock option with respect to 60,000,0shares of Class B common stock and will then offer 30,200,000 those shares as Class A common stock in our initial puboffering. We expect that the substantial majority of the nproceeds Mr. Zuckerberg will receive upon such sale will be us

to satisfy taxes that he will incur in connection with the optiexercise. See Use of Proceeds.

Voting rights Shares of Class A common stock are entitled to one vote per shar

Shares of Class B common stock are entitled to ten votes per shar

Holders of our Class A common stock and Class B common stowill generally vote together as a single class, unless otherwirequired by law. Mr. Zuckerberg, who after our initial puboffering will control approximately 55.8% of the voting power our outstanding capital stock, will have the ability to control toutcome of matters submitted to our stockholders for approvincluding the election of our directors. See Description of CapiStock.

The number of shares of Class A and Class B common stock to be outstanding after our initial public offering include(i) 117,549,393 shares of our Class A common stock and 1,780,535,644 shares of our Class B common stock outstanding as of March 32012; and (ii) the issuance of 60,000,000 shares of our Class B common stock upon the partial exercise by Mr. Zuckerberg of outstanding stock option to purchase 120,000,000 shares of our Class B common stock and the automatic conversion of 30,200,000 of thoshares into an equivalent number of shares of Class A common stock upon their sale in our initial public offering, and excludes:

NASDAQ Global Select Market symbol FB

116,756,442 shares of Class B common stock issuable upon the exercise of options outstanding as of March 31, 2012 under o2005 Stock Plan, with a weighted-average exercise price of approximately $0.94 per share;

60,000,000 shares of Class B common stock issuable upon the exercise of the remaining portion of an option held Mr. Zuckerberg, with an exercise price of $0.06 per share;

378,429,048 shares of Class B common stock subject to RSUs outstanding as of March 31, 2012 under our 2005 Stock Plan;

22,999,412 shares of common stock issuable upon completion of our acquisition of Instagram, Inc.;

25,257,815 shares of Class B common stock subject to RSUs granted under our 2005 Stock Plan and 40,000 shares of Classcommon stock issued between April 1, 2012 and May 3, 2012; and

77,466,293 shares of our common stock reserved for future issuance under our equity compensation plans, consisting 25,000,000 shares of Class A common stock reserved for issuance under our 2012 Equity Incentive Plan, and 52,466,293 sharof Class B common stock reserved as of March 31, 2012


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Unless expressly indicated or the context requires otherwise, all information in this prospectus assumes:

for issuance under our 2005 Stock Plan (which reserve includes the 25,257,815 shares of Class B common stock subject to RSUgranted after March 31, 2012). On the date of this prospectus, any remaining shares available for issuance under our 2005 StocPlan will be added to the shares reserved under our 2012 Equity Incentive Plan and we will cease granting awards under t2005 Stock Plan. Our 2012 Equity Incentive Plan also provides for automatic annual increases in the number of shares reservethereunder and for increases based on forfeited or withheld shares and other events, as more fully described in ExecutiCompensationEmployee Benefit Plans.

the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2012 into 545,401,443 shares Class B common stock in connection with our initial public offering;

the automatic conversion of 175,332,494 shares of our Class B common stock into an equivalent number of shares of oClass A common stock upon their sale by the selling stockholders in our initial public offering;

the conversion by certain of our existing stockholders pursuant to contractual agreements of an aggregate of 162,999,909 sharof our Class B common stock into an equivalent number of shares of our Class A common stock in connection with our initipublic offering;

no exercise by the underwriters of their right to purchase up to an additional 63,185,042 shares of Class A common stock frous and the selling stockholders to cover over-allotments; and

the filing of our restated certificate of incorporation and the effectiveness of our restated bylaws in connection with our initpublic offering.


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SUMMARY CONSOLIDATED FINANCIAL DATA

The following table summarizes our consolidated financial data. We have derived the summary consolidated statements of incomdata for the years ended December 31, 2009, 2010, and 2011 from our audited consolidated financial statements included elsewhere in thprospectus. The consolidated statements of income data for the three months ended March 31, 2011 and 2012, and the consolidated balansheet data as of March 31, 2012 have been derived from our unaudited consolidated financial statements appearing elsewhere in th

prospectus. In our opinion, such financial statements include all adjustments, consisting only of normal recurring adjustments, that wconsider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessariindicative of our results in any future period. The summary of our consolidated financial data set forth below should be read together wiour consolidated financial statements and the related notes, as well as the section entitled Managements Discussion and Analysis Financial Condition and Results of Operations, included elsewhere in this prospectus.

Year Ended December 31,Three Months Ended

March 31,

2009 2010 2011 2011 2012(in millions, except per share data)

Consolidated Statements of Income Data:Revenue $ 777 $ 1,974 $ 3,711 $ 731 $ 1,05Costs and expenses :

Cost of revenue 223 493 860 167 27Marketing and sales 115 184 427 68 15

Research and development 87 144 388 57 15General and administrative 90 121 280 51 8

Total costs and expenses 515 942 1,955 343 67

Income from operations 262 1,032 1,756 388 38Interest and other income (expense), net (8 ) (24) (61 ) 10

Income before provision for income taxes 254 1,008 1,695 398 38Provision for income taxes 25 402 695 165 17

Net income $ 229 $ 606 $ 1,000 $ 233 $ 20

Net income attributable to Class A and Class B common stockholders $ 122 $ 372 $ 668 $ 153 $ 13

Earnings per share attributable to Class A and Class B commonstockholders :

Basic $ 0.12 $ 0.34 $ 0.52 $ 0.12 $ 0.1

Diluted $ 0.10 $ 0.28 $ 0.46 $ 0.11 $ 0.0

Pro forma earnings per share attributable to Class A and Class Bcommon stockholders :

Basic $ 0.49 $ 0.1

Diluted $ 0.43 $ 0.0

(1) Costs and expenses in 2009, 2010, and 2011 and the first quarter of 2011 and 2012 include share-based compensation expense of $27 million, $20 million, $217 million,million, and $103 million, respectively, as follows:

(1)

(2)

(2)


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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should consider carefully the risks and uncertainties descelow, together with all of the other information in this prospectus, including the consolidated financial statements and the related nncluded elsewhere in this prospectus, before deciding whether to invest in shares of our Class A common stock. The risks and uncertaiescribed below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe ar

material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our busin

nancial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the market price ofClass A common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business and Industry

f we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, finaesults, and business may be significantly harmed.

The size of our user base and our users level of engagement are critical to our success. We had 901 million monthly active users (MAs of March 31, 2012. Our financial performance has been and will continue to be significantly determined by our success in adding, retainnd engaging active users. We anticipate that our active user growth rate will decline over time as the size of our active user base increasess we achieve higher market penetration rates. To the extent our active user growth rate slows, our business performance will becncreasingly dependent on our ability to increase levels of user engagement in current and new markets. If people do not perceive our produce useful, reliable, and trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duratioheir engagement. A number of other social networking companies that achieved early popularity have since seen their active user bases or le

f engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our active user bangagement levels. A decrease in user retention, growth, or engagement could render Facebook less attractive to developers and advertwhich may have a material and adverse impact on our revenue, business, financial condition, and results of operations. Any number of faould potentially negatively affect user retention, growth, and engagement, including if:

users increasingly engage with competing products;

we fail to introduce new and improved products or if we introduce new products or services that are not favorably received;

we are unable to successfully balance our efforts to provide a compelling user experience with the decisions we make with respthe frequency, prominence, and size of ads and other commercial content that we display;

we are unable to continue to develop products for mobile devices that users find engaging, that work with a variety of moperating systems and networks, and that achieve a high level of market acceptance;

there are changes in user sentiment about the quality or usefulness of our products or concerns related to privacy and sharing, sasecurity, or other factors;

we are unable to manage and prioritize information to ensure users are presented with content that is interesting, useful, and releto them;

there are adverse changes in our products that are mandated by legislation, regulatory authorities, or litigation, including settlemor consent decrees;

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we adopt policies or procedures related to areas such as sharing or user data that are perceived negatively by our users or the gepublic;

we fail to provide adequate customer service to users, developers, or advertisers;

we, our Platform developers, or other companies in our industry are the subject of adverse media reports or other negative publor

If we are unable to maintain and increase our user base and user engagement, our revenue, financial results, and future growth potemay be adversely affected.

We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers Facebook, could seriously harm our business.

our current or future products, such as the Facebook Platform, reduce user activity on Facebook by making it easier for our us

interact and share on third-party websites.

The substantial majority of our revenue is currently generated from third parties advertising on Facebook. In 2009, 2010, and 2011 andirst quarter of 2011 and 2012, advertising accounted for 98%, 95%, 85%, 87%, and 82%, respectively, of our revenue. As is common industry, our advertisers typically do not have long-term advertising commitments with us. Many of our advertisers spend only a relatively sortion of their overall advertising budget with us. In addition, advertisers may view some of our products, such as sponsored stories and

with social context, as experimental and unproven. Advertisers will not continue to do business with us, or they will reduce the prices thewilling to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believeheir investment in advertising with us will generate a competitive return relative to other alternatives. Our advertising revenue coul

dversely affected by a number of other factors, including:

decreases in user engagement, including time spent on Facebook;

increased user access to and engagement with Facebook through our mobile products, where we do not currently directly genmeaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on percomputers where we monetize usage by displaying ads and other commercial content;

product changes or inventory management decisions we may make that reduce the size, frequency, or relative prominence of adother commercial content displayed on Facebook;

our inability to improve our analytics and measurement solutions that demonstrate the value of our ads and other commercial con

decisions by advertisers to use our free products, such as Facebook Pages, instead of advertising on Facebook;

loss of advertising market share to our competitors;

adverse legal developments relating to advertising, including legislative and regulatory developments and developments in litigat

adverse media reports or other negative publicity involving us, our Platform developers, or other companies in our industry;

our inability to create new products that sustain or increase the value of our ads and other commercial content;

the degree to which users opt out of social ads or otherwise limit the potential audience of commercial content;

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the impact of new technologies that could block or obscure the display of our ads and other commercial content; and

The occurrence of any of these or other factors could result in a reduction in demand for our ads and other commercial content, whicheduce the prices we receive for our ads and other commercial content, or cause advertisers to stop advertising with us altogether, either of w

would negatively affect our revenue and financial results.

Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on persomputers may negatively affect our revenue and financial results.

the impact of macroeconomic conditions and conditions in the advertising industry in general.

We had 488 million MAUs who used Facebook mobile products in March 2012. While most of our mobile users also access Facehrough personal computers, we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal compor the foreseeable future, in part due to our focus on developing mobile products to encourage mobile usage of Facebook. We have historiot shown ads to users accessing Facebook through mobile apps or our mobile website. In March 2012, we began to include sponsored storsers mobile News Feeds. However, we do not currently directly generate any meaningful revenue from the use of Facebook mobile prodnd our ability to do so successfully is unproven. We believe this increased usage of Facebook on mobile devices has contributed to the rrend of our daily active users (DAUs) increasing more rapidly than the increase in the number of ads delivered. If users increasingly ac

Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetiztrategies for our mobile users, or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue wouegatively affected.

Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks,tandards that we do not control.

There is no guarantee that popular mobile devices will continue to feature Facebook, or that mobile device users will continue toFacebook rather than competing products. We are dependent on the interoperability of Facebook with popular mobile operating systems thao not control, such as Android and iOS, and any changes in such systems that degrade our products functionality or give preferential treato competitive products could adversely affect Facebook usage on mobile devices. Additionally, in order to deliver high quality mobile prodt is important that our products work well with a range of mobile technologies, systems, networks, and standards that we do not control

may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectiwith these technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use Facebook on mobile devices, or if our users choose not to access or use Facebook on their mobile devices or use mobile products that do not offer acceFacebook, our user growth and user engagement could be harmed.

We may not be successful in our efforts to grow and further monetize the Facebook Platform.

We have made and are continuing to make major investments to enable developers to build applications (apps) and websites that inte

with the Facebook Platform. Existing and prospective Platform developers may not be successful in building apps or websites that createmaintain user engagement. Additionally, developers may choose to build on other platforms, including mobile platforms controlled by arties, rather than building on the Facebook Platform. We are continuously seeking to balance the distribution objectives of our Platevelopers with our desire to provide an optimal user experience, and we may not be successful in achieving a balance that continues to atnd retain Platform developers. From time to time, we have taken actions to reduce the volume of communications from apps to use

Facebook with the objective of enhancing the user experience, and such actions have reduced distribution from, user engagement with, anmonetization opportunities from, apps on Facebook. In some instances, these actions have adversely affected our relationships with Platevelopers. If we are not successful in our efforts to grow our Platform or if we are

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nable to build and maintain good relations with Platform developers, our user growth and user engagement and our financial results madversely affected.

Additionally, we may not be successful in further monetizing the Facebook Platform. We currently monetize the Facebook Platforeveral ways, including ads on pages generated by apps on Facebook, direct advertising on Facebook purchased by Platform developers to raffic to their apps and websites, and fees from our Platform developers use of our Payments infrastructure to sell virtual and digital goosers. Apps built by developers of social games, particularly Zynga, are currently responsible for substantially all of our revenue derived

ayments. In addition, a relatively small percentage of our users have transacted with Facebook Payments. For example, in 2011, approxim5 million users purchased virtual goods using Facebook Payments. If the Platform apps that currently generate revenue fail to grow or maiheir users and engagement, if Platform developers do not continue to introduce new apps that attract users and create engagement, if Platevelopers reduce their advertising on Facebook, if we fail to maintain good relationships with Platform developers or attract new developerf Platform apps outside of social games do not gain popularity and generate significant revenue, our financial performance and ability to evenue could be adversely affected.

Our business is highly competitive. Competition presents an ongoing threat to the success of our business.

We face significant competition in almost every aspect of our business, including from companies such as Google, Microsoft, and Twwhich offer a variety of Internet products, services, content, and online advertising offerings, as well as from mobile companies and smnternet companies that offer products and services that may compete with specific Facebook features. We also face competition from traditnd online media businesses for advertising budgets. We compete broadly with Googles social networking offerings, including Google+lso with other, largely regional, social networks that have strong positions in particular countries, including Cyworld in Korea, Mixi in Ja

Orkut (owned by Google) in Brazil and India, and vKontakte in Russia. We would also face competition from companies in China suc

Renren, Sina, and Tencent in the event that we are able to access the market in China in the future. As we introduce new products, as our exisroducts evolve, or as other companies introduce new products and services, we may become subject to additional competition.

Some of our current and potential competitors have significantly greater resources and better competitive positions in certain markets we do. These factors may allow our competitors to respond more effectively than us to new or emerging technologies and changes in mequirements. Our competitors may develop products, features, or services that are similar to ours or that achieve greater market acceptance, ndertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing polin addition, Platform partners may use information shared by our users through the Facebook Platform in order to develop products or feahat compete with us. Certain competitors, including Google, could use strong or dominant positions in one or more markets to gain competdvantage against us in areas where we operate including: by integrating competing social networking platforms or features into productsontrol such as search engines, web browsers, or mobile device operating systems; by making acquisitions; or by making access to Faceb

more difficult. As a result, our competitors may acquire and engage users at the expense of the growth or engagement of our user base, wmay negatively affect our business and financial results.

We believe that our ability to compete effectively depends upon many factors both within and beyond our control, including:

the usefulness, ease of use, performance, and reliability of our products compared to our competitors;

the size and composition of our user base;

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the timing and market acceptance of products, including developments and enhancements to our or our competitors products;

our ability to monetize our products, including our ability to successfully monetize mobile usage;

the frequency, size, and relative prominence of the ads and other commercial content displayed by us or our competitors;

customer service and support efforts;

marketing and selling efforts;

our ability to establish and maintain developers interest in building on the Facebook Platform;

changes mandated by legislation, regulatory authorities, or litigation, including settlements and consent decrees, some of whichhave a disproportionate effect on us;

acquisitions or consolidation within our industry, which may result in more formidable competitors;

our ability to attract, retain, and motivate talented employees, particularly software engineers;

our ability to cost-effectively manage and grow our operations; and

If we are not able to effectively compete, our user base and level of user engagement may decrease, which could make us less attractivevelopers and advertisers and materially and adversely affect our revenue and results of operations.

ction by governments to restrict access to Facebook in their countries could substantially harm our business and financial results.

our reputation and brand strength relative to our competitors.

It is possible that governments of one or more countries may seek to censor content available on Facebook in their country, restrict aco Facebook from their country entirely, or impose other restrictions that may affect the accessibility of Facebook in their country foxtended period of time or indefinitely. For example, access to Facebook has been or is currently restricted in whole or in part in China,

North Korea, and Syria. In addition, governments in other countries may seek to restrict access to Facebook if they consider us to be in violf their laws. In the event that access to Facebook is restricted, in whole or in part, in one or more countries or our competitors are abuccessfully penetrate geographic markets that we cannot access, our ability to retain or increase our user base and user engagement madversely affected, we may not be able to maintain or grow our revenue as anticipated, and our financial results could be adversely affected.

Our efforts to expand the Facebook Platform may result in users increasingly engaging with our Platform developers Facebook-integrwebsites instead of engaging on Facebook, which may negatively affect our advertising revenue and harm our business.

We actively support Platform developers efforts to develop products that integrate with Facebook on the developers websites. latform developers may choose to prioritize building or supporting Facebook-integrated websites as opposed to building or supporting app

un on the Facebook website. When users visit a Platform partners Facebook-integrated website, we do not deliver advertisements, whereawould have displayed advertisements to these users if their activity had taken place on the Facebook website. If Facebook-integrated webraw users away from our website, it may reduce or slow the growth of our user activity that generates advertising opportunities, which cegatively affect our advertising revenue. Although we believe that there are significant long-term benefits to Facebook resulting from increngagement on Facebook-integrated websites, these benefits may not offset the possible loss of advertising revenue, in which case our busould be harmed.

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Our new products and changes to existing products could fail to attract or retain users or generate revenue.

Our ability to retain, increase, and engage our user base and to increase our revenue will depend heavily on our ability to create succeew products, both independently and in conjunction with Platform developers or other third parties. We may introduce significant changur existing products or develop and introduce new and unproven products, including using technologies with which we have little or no pevelopment or operating experience. If new or enhanced products fail to engage users, developers, or advertisers, we may fail to attract or rsers or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely affen the future, we may invest in new products and initiatives to generate revenue, but there is no guarantee these approaches will be successf

we are not successful with new approaches to monetization, we may not be able to maintain or grow our revenue as anticipated or recoverssociated development costs, and our financial results could be adversely affected.

Our culture emphasizes rapid innovation and prioritizes user engagement over short-term financial results.

We have a culture that encourages employees to quickly develop and launch new and innovative products. As our business growsecomes more complex, our cultural emphasis on moving quickly may result in unintended outcomes or decisions that are poorly receivesers, developers, or advertisers. Our culture also prioritizes our user engagement over short-term financial results, and we frequently mroduct decisions that may reduce our short-term revenue or profitability if we believe that the decisions are consistent with our missionenefit the aggregate user experience and will thereby improve our financial performance over the long term. As an example, we believe thaecent trend of our DAUs increasing more rapidly than the increase in the number of ads delivered has been due in part to certain pages haewer ads per page as a result of these kinds of product decisions. These decisions may not produce the long-term benefits that we expe

which case our user growth and engagement, our relationships with developers and advertisers, and our business and results of operations ce harmed.

f we are not able to maintain and enhance our brand, or if events occur that damage our reputation and brand, our ability to expandase of users, developers, and advertisers may be impaired, and our business and financial results may be harmed.

We believe that the Facebook brand has significantly contributed to the success of our business. We also believe that maintainingnhancing our brand is critical to expanding our base of users, developers, and advertisers. Many of our new users are referred by existing und therefore we strive to ensure that our users remain favorably inclined towards Facebook. Maintaining and enhancing our brand will deargely on our ability to continue to provide useful, reliable, trustworthy, and innovative products, which we may not do successfully. We ntroduce new products or terms of service that users do not like, which may negatively affect our brand. Additionally, the actions oflatform developers may affect our brand if users do not have a positive experience using third-party apps and websites integrated

Facebook. We have in the past experienced, and we expect that in the future we will continue to experience, media, legislative, or regulacrutiny of our decisions regarding user privacy or other issues, which may adversely affect our reputation and brand. We also may farovide adequate customer service, which could erode confidence in our brand. Our brand may also be negatively affected by the actiosers that are deemed to be hostile or inappropriate to other users, or by users acting under false or inauthentic identities. Maintainingnhancing our brand may require us to make substantial investments and these investments may not be successful. If we fail to success

romote and maintain the Facebook brand or if we incur excessive expenses in this effort, our business and financial results may be adveffected.

mproper access to or disclosure of our users information, or violation of our terms of service or policies, could harm our reputationdversely affect our business.

Our efforts to protect the information that our users have chosen to share using Facebook may be unsuccessful due to the actions of arties, software bugs or other technical malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attemraudulently induce employees or users to disclose information in order to gain access to our data or our users data. If any of these events ocur users information could be accessed or disclosed improperly. Our Data Use Policy governs the use of information that

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share-based compensation expense including approximately $965 million that we will incur in the quarter of the completion oinitial public offering in connection with the vesting of restricted stock units (RSUs) granted prior to 2011 for which the secondition was satisfied as of March 31, 2012;

adverse litigation judgments, settlements, or other litigation-related costs;

changes in the legislative or regulatory environment, including with respect to privacy, or enforcement by government regulaincluding fines, orders, or consent decrees;

fluctuations in currency exchange rates and changes in the proportion of our revenue and expenses denominated in focurrencies;

fluctuations in the market values of our portfolio investments and in interest rates;

changes in U.S. generally accepted accounting principles; and

n 2011 and the first quarter of 2012, we estimate that up to 19% and 15% of our revenue, respectively, was derived from Paymrocessing fees from Zynga, direct advertising from Zynga, and revenue from third parties for ads shown on pages generated by Zynga af Zynga does not maintain its level of engagement with our users or if we are unable to successfully maintain our relationship with Zyur financial results could be harmed.

changes in business or macroeconomic conditions.

In 2011 and the first quarter of 2012, Zynga directly accounted for approximately 12% and 11%, respectively, of our revenue, whichomprised of revenue derived from Payments processing fees related to Zyngas sales of virtual goods and from direct advertising purchase

Zynga. Additionally, Zyngas apps generate pages on which we display ads from other advertisers; for 2011 and the first quarter of 2012stimate that an additional approximately 7% and 4%, respectively, of our revenue was generated from the display of these ads. Zyngaecently launched games on its own website and on non-Facebook platforms, and Zynga may choose to try to migrate users from exi

Facebook-integrated games to other websites or platforms. We may fail to maintain good relations with Zynga or Zynga may decide to reducease its investments in games on the Facebook Platform. If the use of Zynga games on our Platform declines for these or other reasonsinancial results may be adversely affected.

We expect our rates of growth will decline in the future.

We believe that our rates of user and revenue growth will decline over time. For example, our revenue grew 154% from 2009 to 2010, rom 2010 to 2011, and 45% from the first quarter of 2011 to the same period in 2012. Historically, our user growth has been a primary drivrowth in our revenue. We expect that our user growth and revenue growth rates will decline as the size of our active user base increases an

we achieve higher market penetration rates. As our growth rates decline, investors perceptions of our business may be adversely affectedhe market price of our Class A common stock could decline.

Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other maany of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our busi

ractices, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

We are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, incluser privacy, rights of publicity, data protection, content, intellectual property, distribution, electronic contracts and other communicatompetition, protection of minors, consumer protection, taxation, and online payment services. Foreign data protection, privacy, and other nd regulations are often more restrictive than those in the United States. These U.S. federal and state and foreign laws and regulationonstantly evolving and can be subject to significant change. In addition, the application and

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nterpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operatexample, the interpretation of some laws and regulations that govern the use of names and likenesses in connection with advertising

marketing activities is unsettled and developments in this area could affect the manner in which we design our products, as well as our termse. A number of proposals are pending before federal, state, and foreign legislative and regulatory bodies that could significantly affecusiness. For example, a revision to the 1995 European Union Data Protection Directive is currently being considered by European legislodies that may include more stringent operational requirements for data processors and significant penalties for non-compliance. Simihere have been a number of recent legislative proposals in the United States, at both the federal and state level, that would impose

bligations in areas such as privacy and liability for copyright infringement by third parties. These existing and proposed laws and regulaan be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase our operosts, require significant management time and attention, and subject us to claims or other remedies, including fines or demands that we mr cease existing business practices.

We have been subject to regulatory investigations and settlements and we expect to continue to be subject to such proceedings in the fuwhich could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to

usiness.

From time to time, we receive inquiries from regulators regarding our compliance with laws and other matters. For example, in 2011eached agreement with the Federal Trade Commission (FTC) to resolve an investigation into various practices by entering into a 20ettlement agreement that, among other things, requires us to establish and refine certain practices with respect to treatment of user datarivacy settings and also requires that we complete bi-annual independent privacy audits. As another example, in 2011 the Irish Data Protec

Commissioner (DPC) conducted an audit of the data, security, and privacy practices and policies of Facebook Ireland, which is the ontroller for Facebook users outside the United States and Canada, and released a report of its conclusions in December 2011. The FTC

DPC have investigated and audited aspects of our products and practices, and we expect to continue to be the subject of regulatory investigatnd audits in the future by these and other regulators throughout the world.

It is possible that a regulatory inquiry might result in changes to our policies or practices. Violation of existing or future regulatory or consent decrees could subject us to substantial monetary fines and other penalties that could negatively affect our financial conditionesults of operations. In addition, it is possible that future orders issued by, or enforcement actions initiated by, regulatory authorities could cs to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

f we are unable to protect our intellectual property, the value of our brand and other intangible assets may be diminished, and our busmay be adversely affected.

We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultantshird parties with whom we have relationships, as well as trademark, copyright, patent, trade secret, and domain name protection laws, to prur proprietary rights. In the United States and internationally, we have filed various applications for protection of certain aspects ontellectual property, and we currently hold a number of issued patents in multiple jurisdictions. In addition, in the future we may acq

dditional patents or patent portfolios, which could require significant cash expenditures. However, third parties may knowingly or unknownfringe our proprietary rights, third parties may challenge proprietary rights held by us, and pending and future trademark and ppplications may not be approved. In addition, effective intellectual property protection may not be available in every country in whicperate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in ordrevent infringement or to enforce our rights. Although we have taken measures to protect our proprietary rights, there can be no assurancethers will not offer products or concepts that are substantially similar to ours and compete with our business. In addition, we reguontribute software source code under open source licenses and have made other technology we developed available under other open licend we include open source software in

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hese RSUs, assuming an approximate 45% tax withholding rate, we anticipate that we will net settle the awards by delivering an aggregapproximately 155 million shares of Class B common stock to RSU holders and withholding an aggregate of approximately 122 million shf Class B common stock, based on RSUs outstanding as of March 31, 2012 for which the service condition will be satisfied as of the daettlement. In connection with these net settlements we will withhold and remit the tax liabilities on behalf of the RSU holders in cash tpplicable tax authorities.

To fund the withholding and remittance obligations, we expect to sell equity securities near the initial settlement date in an amount th

ubstantially equivalent to the number of shares of common stock that we withhold in connection with these net settlements, such that the nssued shares should not be dilutive. We have an exception in our lock-up agreement with our underwriters that would permit us to apital in an underwritten offering to fund these withholding and remittance obligations. However, in the event that we issue equity secur

we cannot assure you that we will be able to successfully match the proceeds to the amount of this tax liability. In addition, any such eqinancing could result in a decline in our stock price. If we elect not to fully fund tax withholding and remittance obligations through the issuf equity or we are unable to complete such an offering due to market conditions or otherwise, we may choose to borrow funds from our cacilities, use a substantial portion of our existing cash, or rely upon a combination of these alternatives. In the event that we elect to satisfy

withholding and remittance obligations in whole or in part by drawing on our credit facilities, our interest expense and principal repaymequirements could increase significantly, which could have an adverse effect on our financial results.

We cannot be certain that additional financing will be available on reasonable terms when required, or at all.

From time to time, we may need additional financing, whether in connection with our RSU tax obligation or otherwise. Our abilibtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the ca

markets, and other factors. To the extent we draw on our credit facilities to fund the RSU tax obligation, we may need to raise additional f

nd we cannot assure you that additional financing will be available to us on favorable terms when required, or at all. If we raise additional fhrough the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences, or privileges senior to the righur Class A common stock, and our existing stockholders may experience dilution.

Our costs are growing quickly, which could harm our business and profitability.

Providing our products to our users is costly and we expect our expenses to continue to increase in the future as we broaden our user bs users increase the number of connections and amount of data they share with us, as we develop and implement new product featuresequire more computing infrastructure, and as we hire additional employees. Historically, our costs have increased each year due to these fand we expect to continue to incur increasing costs, in particular for employees, servers, storage, power, and data centers, to suppornticipated future growth. We expect to continue to invest in our global infrastructure in order to provide our products rapidly and reliably sers around the world, including in countries where we do not expect significant short-term monetization. Our expenses may be greater thanticipate, and our investments to make our business and our technical infrastructure more efficient may not be successful. In addition, wencrease marketing, sales, and other operating expenses in order to grow and expand our operations and to remain competitive. Increases inosts may adversely affect our business and profitability.

Our business is dependent on our ability to maintain and scale our technical infrastructure, and any significant disruption in our seould damage our reputation, result in a potential loss of users and engagement, and adversely affect our financial results.

Our reputation and ability to attract, retain, and serve our users is dependent upon the reliable performance of Facebook and our underlechnical infrastructure. Our systems may not be adequately designed with the

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ecessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. If Facebook is unavaiwhen users attempt to access it, or if it does not load as quickly as they expect, users may not return to our website as often in the future, or aAs our user base and the amount and types of information shared on Facebook continue to grow, we will need an increasing amount of technfrastructure, including network capacity, and computing power, to continue to satisfy the needs of our users. It is possible that we may faffectively scale and grow our technical infrastructure to accommodate these increased demands. In addition, our business is subjecnterruptions, delays, or failures resulting from earthquakes, other natural disasters, terrorism, or other catastrophic events.

A substantial portion of our network infrastructure is provided by third parties. Any disruption or failure in the services we receive hese providers could harm our ability to handle existing or increased traffic and could significantly harm our business. Any financial or oifficulties these providers face may adversely affect our business, and we exercise little control over these providers, which increasesulnerability to problems with the services they provide.

We recently began to own and build key portions of our technical infrastructure, and, because of our limited experience in this areaould experience unforeseen difficulties.

In 2011, we began serving our products from data centers owned by Facebook using servers specifically designed for us. We plontinue to significantly expand the size of our infrastructure, primarily through data centers that we design and own. The infrastruxpansion we are undertaking is complex, and unanticipated delays in the completion of these projects or availability of components may lencreased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of our products. In addition,

may be issues related to this infrastructure that are not identified during the testing phases of design and implementation, which may ecome evident after we have started to fully utilize the underlying equipment, that could further degrade the user experience or increaseosts.

Our software is highly technical, and if it contains undetected errors, our business could be adversely affected.

Our products incorporate software that is highly technical and complex. Our software has contained, and may now or in the future conndetected errors, bugs, or vulnerabilities. Some errors in our software code may only be discovered after the code has been released. Any erugs, or vulnerabilities discovered in our code after release could result in damage to our reputation, loss of users, loss of revenue, or liabilityamages, any of which could adversely affect our business and financial results.

Certain of our user metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may hur reputation and negatively affect our business.

The numbers of our MAUs and DAUs and average revenue per user (ARPU) are calculated using internal company data. While tumbers are based on what we believe to be reasonable estimates of our user base for the applicable period of measurement, there are inhehallenges in measuring usage of our products across large online and mobile populations around the world. For example, there mandividuals who have multiple Facebook accounts in violation of our terms of service, despite our efforts to detect and suppress such beha

We estimate that false or duplicate accounts may have represented approximately 5-6% of our MAUs as of December 31, 2011. However,

stimate is based on an internal review of a limited sample of accounts and we apply significant judgment in making this determination, sudentifying names that appear to be fake or other behavior that appears inauthentic to the reviewers. As such, our estimation of false or duplccounts may not accurately represent the actual number of such accounts. Our metrics are also affected by applications on certain mevices that automatically contact our servers for regular updates with no user action involved, and this activity can cause our system to che user associated with such a device as an active user on the day such contact occurs. For example, we estimate that less than 5% ofstimated worldwide DAUs as of December 31, 2011 and 2010 resulted from this type of automatic mobile activity, and that this type of actad a substantially

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maller effect on our estimate of worldwide MAUs and mobile MAUs. The impact of this automatic activity on our metrics varies by geogrecause mobile usage varies in different regions of the world. In addition, our data regarding the geographic location of our users is estimased on a number of factors, such as the users IP address and self-disclosed location. These factors may not always accurately reflect the uctual location. For example, a mobile-only user may appear to be accessing Facebook from the location of the proxy server that theonnects to rather than from the users actual location. In addition, our estimates for revenue by user location are also affected by these factodvertisers, developers, or investors do not perceive our user metrics to be accurate representations of our user base, or if we discover manaccuracies in our user metrics, our reputation may be harmed and advertisers and developers may be less willing to allocate their budge

esources to Facebook, which could negatively affect our business and financial results.

We cannot assure you that we will effectively manage our growth.

Our employee headcount and the scope and complexity of our business have increased significantly, with the number of full-mployees increasing from 2,431 as of March 31, 2011, to 3,539 as of March 31, 2012, and we expect headcount growth to continue fororeseeable future. The growth and expansion of our business and products create significant challenges for our management, operationalinancial resources, including managing multiple relations with users, advertisers, Platform developers, and other third parties. In the eveontinued growth of our operations or in the number of our third-party relationships, our information technology systems or our internal connd procedures may not be adequate to support our operations. In addition, some members of our management do not have signifxperience managing a large global business operation, so our management may not be able to manage such growth effectively. To effect

manage our growth, we must continue to improve our operational, financial, and management processes and systems and to effectively exprain, and manage our employee base. As our organization continues to grow, and we are required to implement more complex organizati

management structures, we may find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quevelop and launch new and innovative products. This could negatively affect our business performance.

The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could hur business.

We currently depend on the continued services and performance of our key personnel, including Mark Zuckerberg and Sheryandberg. Although we have entered into employment agreements with Mr. Zuckerberg and Ms. Sandberg, the agreements have no speuration and constitute at-will employment. In addition, many of our key technologies and systems are custom-made for our business byersonnel. The loss of key personnel, including members of management as well as key engineering, product development, marketing, and ersonnel, could disrupt our operations and have an adverse effect on our business.

As we continue to grow, we cannot guarantee we will continue to attract the personnel we need to maintain our competitive positioarticular, we intend to hire a significant number of engineering and sales personnel in 2012, and we expect to face significant competition ther companies in hiring such personnel, particularly in the San Francisco Bay Area. As we mature, the incentives to attract, retain,

motivate employees provided by our equity awards or by future arrangements, such as through cash bonuses, may not be as effective as inast. Additionally, we have a number of current employees whose equity ownership in our company gives them a substantial amount of pers

wealth. Likewise, we have a number of current employees whose equity awards are fully vested and shortly after the completion of our iublic offering will be entitled to receive substantial amounts of our capital stock. As a result, it may be difficult for us to continue to retain

motivate these employees, and this wealth could affect their decisions about whether or not they continue to work for us. If we do not succeettracting, hiring, and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively.

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quity or issuance of debt to finance any such acquisitions could result in dilution to our stockholders. The incurrence of indebtedness wesult in increased fixed obligations and could also include covenants or other restrictions that would impede our ability to manageperations.

f we default on our leasing and credit obligations, our operations may be interrupted and our business and financial results coudversely affected.

We finance a significant portion of our expenditures through leasing arrangements, some of which are not required to be reflected o

alance sheet, and we may enter into additional similar arrangements in the future. In particular, we have used these types of arrangemeninance some of our equipment and data centers. In addition, we have credit facilities that we may draw upon to finance our operations or oorporate purposes, such as funding our tax withholding and remittance obligations in connection with the settlement of RSUs. If we defauhese leasing and credit obligations, our leasing partners and lenders may, among other things:

require repayment of any outstanding lease obligations or amounts drawn on our credit facilities;

terminate our leasing arrangements and credit facilities;

terminate our access to the leased data centers we utilize;

stop delivery of ordered equipment;

sell or require us to return our leased equipment; or

If some or all of these events were to occur, our operations may be interrupted and our ability to fund our operations or obligations, as s our business, financial results, and financial condition, could be adversely affected.

We may have exposure to greater than anticipated tax liabilities.

require us to pay significant damages.

Our income tax obligations are based on our corporate operating structure and intercompany arrangements, including the manner in wwe develop, value, and use our intellectual property and the valuations of our intercompany transactions. The tax laws applicable tonternational business activities, includ

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